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Businesses Other Than Airlines Feel The Pain

Ash cloud chaos spreads beyond airlines

Apr 19, 2010

The financial cost to business of the airline chaos has intensified, with the ash cloud disruption far from over.

On top of the huge loss in revenues for airlines, other companies are suffering disruption to deliveries and supplies.

Food goods face delivery problems, with delays spreading to the drugs and hi-tech sectors if the crisis continues.

Meanwhile, more airlines have launched test flights to assess ash damage to jet engines, amid signs that some feel the threat is being overstated.

While airlines are the biggest losers, with revenues down an estimated ÂŁ130m a day, other companies are starting to feel the effects of the flying ban.

Alan Braithwaite, chairman of LCP consulting and visiting professor at Cranfield said: "The disruption... will lead to shortages of product quite quickly for categories like fresh fruit and flowers and then into the pharmaceuticals and hi-tech areas based on limited stock in the chain.

"If this disruption lasts for another four or five days then there will be selective shortages."

Prof Braithwaite warned: "The air freight sector, which is just starting to bounce back from a crippling recession, will undoubtedly experience more losses. There have been recent bankruptcies so if this disruption lasts it will be seriously detrimental to the air freight sector."


Although air freight represents just 0.5% of the UK's international movement of goods, it accounts for 25% by value, and includes item like pharmaceuticals and luxury goods.

Goods air-freighted for just-in-time deliverys are especially vulnerable.

Norman Black, a spokesman for freight company United Parcel Service, said: "If your just-in-time operation is depending on parts that come from Asia or the US or Africa or the Mideast... you just can't get it."

UPS and DHL have their European air-hubs in Germany, and Fedex's is in France, which have both closed their airspace.

"There's just not an option right at the moment while we all wait and see how long this is going to take," Mr Black said.

Companies producing perishable goods frequently use air-freight.

Kenya, the largest supplier of cut flowers to Europe, and East African food producers could be badly hit, said Standard Chartered economist Razia Khan.

Kenya's flower exporters said they were already losing up to $2m a day. The country accounts for about a third of flower imports into the European Union.

A spokesman for the British Retail Consortium said that only more exotic food produce was likely to be affected for the moment.

"The vast majority of fresh food sold in the UK is sourced in the UK, and a very small proportion is air-freighted in. Our members are monitoring the situation but so far it has not had a material impact," the BRC said.

Economic repercussions

Pharmaceutical companies are heavy users of air freight, but said they had enough stocks to avoid any problems in the short term.

A spokesman for AstraZeneca said: "We do have some product at airports awaiting the lifting of flight restrictions but at the moment there is no threat to the supply of medicines to patients."

Howard Archer, chief European economist at IHS Global Insight, believes that the overall economic impact on the UK will be limited if the crisis is over within a few days.

"Obviously though the longer that the problem does persist, the more serious will be the economic repercussions," he said.

Questions raised

With the impact on businesses and travellers worsening, some people are starting to question if the air traffic authorities were too quick to shut down European air space.

The Independent newspaper's Travel editor Simon Calder told BBC News that some airlines he has talked to are unconvinced about the extent of the safety threat.

And the BBC's business editor, Robert Peston, said executives were "beginning to question whether the Met Office's computer model of the ash cloud is exaggerating its size. They claim that satellite pictures do not corroborate the Met's computerised simulation of the cloud."

Mr Peston said one executive told him that that Met Office was being "too cautious".

European airlines are continuing to run test flights to assess possible damage to jet engines caused by the volcanic ash cloud. KLM, whose Saturday test went without incident, is running another eight, and Air France is also taking to the skies. Lufthansa has also run test without any problems.

British Airways was running a test flight early Sunday evening.

"We have found nothing unusual, neither during the flight, nor during the first inspection on the ground," said the Dutch airline's chief executive, Peter Hartman, who was aboard Saturday's test flight.

Ash cloud chaos spreads beyond airlines
Image via Reuters/Regis Duvignau


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